The Great Antidote – Colin Grabow

On this episode of The Great Antidote podcast with Juliette Sellgren, she is joined by guest Colin Grabow. In their discussion, Juliette and Colin cover foreign trade, protectionism, and the Jones Act.


Guest Bio

Colin Grabow is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies where his research focuses on domestic forms of trade protectionism such as the Jones Act and the U.S. sugar program. His writings have been published in a number of outlets, including USA TodayThe HillNational Review, and the Wall Street Journal. Prior to joining the Cato Institute, he performed political and economic analysis for a Japan‐​based trading and investment firm and published research and analysis for an international affairs consulting firm with a focus on U.S.-Asia relations. Grabow holds a BA in international affairs from James Madison University and an MA in international trade and investment policy from George Washington University.


Episode Transcript

Juliette: Welcome back. It is my pleasure today to be speaking to Colin Grabow. Colin is a policy analyst at Cato Institute at the Herbert A. Stiefel Center for Trade Policy Studies, where he focuses on trade protectionisms such as the Jones Act and stuff like that. Today we are going to be talking about the Jones Act. So, welcome Colin.

Colin Grabow: Thank you very much.

Juliette: So, first before we jump into this quite ridiculous issue, I would like to say, what is the most important thing that people my age or in my generation should know that we do not?

Colin: Well, this is a difficult question to answer because I do not presume to know what people your age do not know. In fact, I am consistently impressed by how knowledgeable many young people are. With that said, one thing I would like to impart to young people is the importance of a somewhat counterintuitive concept called, Comparative Advantage. The basic idea is by focusing on what you are relatively best at and then just doing that thing. That is what makes us all better off. My wife, for example, is better than me in almost everything but while she can, like iron, somewhat better than I can, she can cook a lot better than I can. So, I do the ironing and she cooks or both better off for it.

All Comparative Advantage basically are people saying, “Hey, I got this. You go do that other thing you are relatively better at and I will do this thing.” That is true on a global scale and is what drives International Trade. We get that dreaded example of a factory closing and moving to Mexico. It is basically people in Mexico saying, “Hey, we got this. We will make the cars or whatever and you go focus on the thing that you are better at than us”, and that is good for everyone. For Americans that better thing can be any number of things, like designing the latest iPhone, making shows for Netflix or work in Finance or Healthcare, or any other number of sectors that Americans excel at. I just urge that people try to adopt that mentality or way of thinking when they read or hear about trade and increase imports in factory closures. Jobs being shifted from one company to another or one country to another is not necessarily a bad thing, actually, it is a good thing. It is just the economy constantly recalculating and re-evaluating and what were all relatively good at, where our talents are best to use.

So, that is my long-winded answer to your very short question.

Juliette: I really like that answer. I do not know. I feel like I try to think about things like that, but I never have quite been able to… I do not know. I just never really had a good approach one thinking about, well, if a factory closes, how do you explain that in a way that kind of, I mean, it sucks for the people who lost their jobs and I know they still have an opportunity but just thinking about it in that way. I do not know. It is so much nicer, but it is also, it is not that it is a false depiction of what it is, it is just more optimistic. And [crosstalk]

Colin: Yeah.

Juliette: I do not know. I like it. I think that is good. That is something that people especially now, do not do, so, this is very important. Thank you.

Colin: Well, thank you.

Juliette: So, can you tell us first before we jump in, what exactly is the Jones Act?

Colin: The Jones Act is the colloquial name applied to Section 27 of the Merchant Marine Act of 1920 and basically imposes four conditions that have to be met for the transportation of goods by water from one point in the United States to another point in the United States. Basically, any vessel transporting cargo in the United States between two US ports has to meet four conditions and that is, that the vessel or ship has to be registered in flagged in the United States. So, just like you, register your car in a certain State. We have to register your ship in the United States. It has to be at least 75% crewed by Americans and the remaining 25% can be a permanent resident alien. So, a green cardholder. It has to be at least 75% US-owned.

And then lastly, the vessel has to be built in the United States, which is an incredibly unusual requirement that we do not ask of any other form of transportation like airplanes, trucks, railroad, whatever, skateboards, any other means of transporting goods. You can buy it from wherever but when it comes to things of transferring goods by water for some reason, we have a mandate, it has to be built here in this country.

Juliette: That… I do not know. That just seems like there are so many criteria there that, first, I mean, as you mentioned you have not seen applied to other methods of transportation, but also just… That is so many requirements. You would think that you would not need that many to achieve the outcome you want. I do not know, it is just added that a lot. So, boats from different countries can still enter US ports and they do. But how does it work? Let us say, with the example like, if a front vessel carrying cheese enters a US port in New York, but then also has to make a stop in Texas, so, is that under the Jones Act not allowed? How would a company go about operating under those rules?

Colin: So, what happens is, often you do find ships will come over from Europe, say Rotterdam, for example, and what they will do is they will visit multiple US Ports and they will drop off goods that originated from Europe or they will pick up products destined for international locations. But you will have a ship, for example, and we will go to say New York, and then it will head down to Virginia Beach or Wilmington and it will go down to Charleston and maybe Miami, so, it is going to all these different US ports, and that is fine. But it can only again, drop off products that started off in another country or product picking-up trucks are going to another country.

So, on the one hand, that does not sound terribly restrictive but on the other hand, it is a huge missed opportunity because we have these ships going from port to port to port and it is a great opportunity for Americans to say, “Hey, you are heading down to Miami. Anyway, can you take this piece of cargo with you and drop it off there?” No, they cannot, they are going there anyway, but it will be illegal for them to transport that product. So, in many ways, it is kind of like, a conveyor belt operating along our coast that we are forbidden to use.

Juliette: That is a good way, that analogy, that conveyor belt. That is a helpful visual, I think. I have read that shipping oil from Texas to the Northeast costs three times more than shipping oil from Africa to the Northeast? That thought is just crazy, which is an extra cost that shouldered by consumers, specifically consumers in the United States, so like you and me. Can you explain why that is and what other consequences there are of the Jones Act?

Colin: Yes, you can find your multiple examples of products being shipped within the United States and being vastly more expensive to ship it within the United States than to ship internationally. There is an example of shipping oil from Texas to a Refinery on the Mid-Atlantic costing three times more than sitting that same barrel of oil on a non-Jones Act Ship up to Canada, a greater distance. So, that has any number of effects like you mentioned, one consequence is that Americans will pay more for gasoline, for example. But it has this highly distortionary effect on trade. What will happen is, some of these refineries, well, instead of buying American Oil, they will import it from like you said, they will buy from Africa, they will buy it from even Europe say, will produce in the North Sea instead because even though the distances may be greater, once you factor in the cost of transportation and it makes more sense to buy the foreign product. This happens in documents, examples of this is Puerto Rico. Puerto Rico, of course, is an island that has to bring in by ship most of what it consumes and they have a choice of where to buy these things.

In 2013, the GAO, the Government Accountability Office, did a study about the Jones Acts impact in Puerto Rico. They talk to people in the Agricultural Community there and they said, “Yeah, when we go to buy feed for animals or fertilizer, oftentimes we will buy it from a foreign source instead of the United States” because even though again, the distance is greater be it from Canada or some other place, once you factor in the cost of transportation, it does not make sense to buy American. And then we get into these truly absurd examples where it can be actually impossible to buy American products because of the Jones Act. Again, if you look at Puerto Rico, Puerto Rico uses natural gas for about, anywhere from one-third to 40% of its power generation and they like to use more because that remains 60%. A lot of that is oil and coal, obviously a lot dirtier, but they cannot buy American Natural Gas because the ships to transport it do not exist.

There are 96 Jones Act Ships. When I use the term ship, I am saying large ocean-going ships. Tugboats do not count here. There are only 96 ships and out of those 96, zero are LNG carriers designed for the purpose of transporting LNG. So, people in Puerto Rico cannot buy American LNG, even though the United States is one of the world’s leading producers of LNG and that is not despite being part of the United States, but because it is part of the United States. Puerto Rico was an independent country and actually make it easier for it to buy American Products, which is completely crazy.

Juliette: That is crazy because it is not even like it has a choice. I mean, that kind of, especially on the topic of like, natural gases, is there an environmental aspect to the Jones Act and the way that it is, I mean, because ships and boats that cause less pollution, unlike cars…

Colin: Absolutely. So, yeah, if you want to move goods, one of the most efficient ways to do it is by water. Shipping by water is a carbon-friendly means of transporting goods relative to other modes like rail, particularly, trucks and absolutely, airplanes. There is a difference there. So, purely from a carbon perspective, we should be trying to move as much by water as possible. Also, just the amount of energy it consumes is less. So there is a lot of environmental reasons to try to shift as much of our transportation to water and away from land-based modes as we can. So, the Jones Act also has other environmental aspects not only do we move less by water then otherwise would be the case. But the vessels that do operate are dirtier then would otherwise, be the case because they are older.

Why are they older? Well, again, we have that US Built Requirement and US Built Ship can cost depending on the type of ship. Tanker tends to be about four times the global price and a container ship is about five times the global price. So, instead of paying 50 million dollars for a ship, you are paying 250 million dollars for a ship. Well, what happens when you face that, those prices, well, you hold on to your ships for longer. You really hate replacing your ships because it is a big expense. So, instead of modernizing your fleet and your ships with the latest and greatest and newer ships. Just like newer cars, newer airplanes tend to be more efficient, you have older, less efficient ships being used. So, it hurts our environment and has negative consequences for several reasons.

And lastly, we are in this place right now, where the Biden Administration is encouraging the use of offshore wind and I am not going to take a position on whether the offshore wind is a smart approach but it is the approach that is currently being pushed for and if you want to do that, well, you need ships to do it. And the Jones Act raises the cost of installing offshore wind energy and makes it a less competitive source of energy. For example, there are specialized vessels needed to take these giant wind turbines and install them.

Right now, there are zero ships in the world that comply with the Jones Act. They are capable of doing that. There is one under construction in Texas right now, but it will not be ready till I think, 2022 or the end of 2023 rather, and it costs you double, what it would cost to build in South Korea. So, the only alternative they have is to use like a foreign ship that can sit there stationary, and then you have to use a barge to bring out the parts to that stationary foreign ship. It is just a crazy concept that adds on extra time, extra costs, again, just reduce the competitiveness of this alternative form of energy.

Juliette: I am also guessing that you would need more than one ship that…

Colin: Yes.

Juliette: …like one more than the one that they are building in like, so if they were to comply with the Jones Act and then they were to build those ships that would cost way more than even what it costs building the initial ship because you need more ships and then it takes more time. And then, at that point, why not find an alternative that is cheaper and will take the last time. I mean, that is kind of what we are facing. I do not know. I cannot get over the fact that we have 96 big ships that are compliant with the Jones Act. That is so many. I do not know, not so many, so few but like… I do not know, what does it do to the competition? I did not mean to say so many. Okay. I do not know. What is that? What did the Jones Act do to… Let me back up. Okay.

So, the Jones act just turned a hundred?

Colin: Yes.

Juliette: In one of your writings, “That is at best an incomplete picture. The Jones Act real story is far more sorted to properly understand the law, one must first go back to the very founding of the Republic.” And you know that Congress’s First Act was to encourage the use of American ships to carry US Commerce through the use of discriminatory taxes and tariffs, which was not a problem at the time because of the US Shipping Industry and how efficient it was. But then, as those laws became more rigid, you wrote, “The rot of protectionism became visible over time.” So, can you tell us that story of how it started and how it changed and became what it is now and talk about how the Jones Act as protectionist?

Colin: Yes. So, as you mentioned the Jones Act turned a hundred years old in June of last year, but it is a mistake to think that this kind of protection was only a hundred years old. We were not and some free-market environment prior to the Jones Act re-enacted 1920. Rather, the Jones Act was kind of a tweak to laws already on the books, and supporters of the Jones Act seized on this and they say, “Well, this just shows, this is the wisdom of the founding fathers and they had similar laws on the books back from the founding of the country.” What they will not tell you is that the environment and the context are just completely different between then and today.

So, back at the beginning of this country, a few things to note here. One is that, unlike today, US Built Ships were some of the best in the world and some of the cheapest in the world. In fact, when we were still part of the British Empire, a huge portion of the British Fleet were all vessels built in the thirteen colonies. That is not a surprise, the thirteen colonies all had a lot of waterfronts. They were very maritime-oriented, of course, we did not have highways back then, ships were how people move goods and people along the coast. We had a lot of forested areas, which is great for timber which of course in the days of wooden ships, was key to shipbuilding. So, we had a lot of people that knew about the ocean or good at building ships, good at sailing the ships and they had a lot of cheap material.

Also, another thing to note is that, back then at the beginning of the country, United States, we were a poor country. We did not have a huge navy like we do today and back then merchant ships could be converted into warships. This is how the United States tried to mitigate the size of its small navy and make up for that, is by taking these merchants ships, adding some cannon to them, and presto, you have a ship that can go fight the British. So, we just fought this war against the British and the British of course was a huge Naval Empire and we want to make sure that we would have ships in case we had to clash with the British again as we did in 1812. So, we had these measures that said that foreign ships, could transport goods within the colonies, but they had to pay some pretty significant taxes, which was a severe deterrent. But some historians that have looked at this basically said, “Look, this policy was cost-free”, because again, being forced to use US Built and US Crude Ships was no big deal because we are some of the best and cheapest at it.

Anyway, that of course is not the case today. And then also, it is changed in that we do not rely on our merchant ships anymore to fight our Naval battles for us. We do not take our commercial ships and put some weapons on them and then turn them into Navy vessels. That does not happen anymore.

So, what happened is that, over time, this protected industry became very uncompetitive. We had the switch from wooden and sailing ships to ships made of iron and steel and that we are using steam power and had engines on them. The United States kept building these wooden ships and the British, who got rid of their own Protectionist Maritime Laws, have the Industrial Revolution. They became very good at building ships and we remain stagnant. In fact, I think it is late as 1890, a majority of US ships were still wooden sailing ships, even though the rest of the world had moved on to iron and steam. So, the predictable result of this is that your shipping can be more uncompetitive, more expensive and Americans are looking for ways to get around it any loophole.

In fact, I believe in the late 1800’s you have this absurd example of someone that want to ship, I think 200 barrels of nails from New York to San Francisco or Los Angeles, one of the two to the West Coast and they did it through Belgium because they figured that if they went to Belgium and Belgium back to the United States, they could avoid the US Laws that mandated the use of US ships between US ports that they put a foreign port in between. That is how expensive your shipping was. It made more sense to go through Belgium. This results in a court case and the court said, “No, the Americans cannot do that”, so Congress changed the law to prohibit the use of going through foreign ports by ship. But what some Americans found is that, in the case of Alaska, if they want to send something to Alaska, what they could do is, as long as they took it overland to a foreign port was permissible. So, people would take things to land up to Vancouver, and then from Vancouver, they would go to Alaska.

Well, guess who hated this? Shipping companies based in Seattle. And so, in 1920 when Senator Wesley Jones was there, the representative senator from Seattle was holding hearings, suddenly shipping companies went to Congress and said, “Look, you guys are having these Maritime hearings. If you really want to help us out, we call this unfair foreign competition. We would like you to shut the door on and the Jones Act.” They actually proposed some language instead of, “You adopt this language.” I think that will eliminate Americans being able to use these foreign ships in Vancouver going to Alaska. We want the Alaska market for ourselves. If you look at what was adopted, if you look at the text of the Jones Act, it is incredibly, strikingly similar to language proposed by the shipping companies based in Seattle. The other piece of this is to remember Alaska was not a state. This point was a territory. They had no representation in Congress. They had no ability to object or fight this.

So, this is basically, shipping companies in Seattle wanting the Alaska market to themselves, hating competition, and using their Senator Wesley Jones of the Jones Act to keep out that competition.

Juliette: Oh my gosh. That is crazy. Those stories, man. Sometimes, the laws are just… Anyway, I find it interesting when I was like researching for this and kind of just doing my own exploration. I found that during the relief efforts to help the people of Puerto Rico recover from hurricane Maria in September of 2017. The White House agreed to temporarily waive the Jones Act to help the goods be distributed more efficiently during the relief efforts. I feel like this is an admission of guilt. Maybe not guilt but like, I feel like that is admitting that the Jones Act actually makes it harder and way more expensive for goods to be delivered to consumers. [crosstalk] Is it not…

Colin: It is a hundred percent commission. Yes, I think it is very perceptive of you. The mentality here is kind of strange to me and that thinking is, “Okay, Puerto Rico got hit by a hurricane so they need stuff. So for ten days, we will take our foot off their throat and let foreign ships transport stuff because getting stuff there as quickly as possible, as cheap as possible is important.” Well, guess what? It is important for the rest of the time too. Even beyond those ten days and even before the hurricane hit. This idea that “Okay, after ten days, let us go back to imposing these stringent laws and making it much more expensive for them to import goods if that is all well and good.” That is just a strange mentality to me. It was good then, it should be good now.

There is a talk about Puerto Rico possibly becoming a state. Well, if it does become a state, we will be the poorest US state. I think by some distance it will be poor than Mississippi. The last I checked, it has like a 43% poverty rate. They have to import much of what they consumed by ship and yet we subject them to some of the most expensive shipping in the world. That just does not seem fair to me, that does not seem right.

Juliette: It really does not. I mean, this also kind of reminds me of some of the COVID like, Waving of Laws and all the Red Tape with, licensing and being able to practice in different states. It just reminds me of that like, if you have to get rid of the law to make it more efficient to help more people, does that not mean that the law does not help the people? I do not know. So, okay. We kind of talked a little bit about how shipping companies, kind of lobbied for this legislation, but who else, what special interests support the Jones Act? Because I know that Hawaii is a representative in Congress, support the Jones Act, which to me seems wild because Hawaii is also an island, which most people should know… This means that it increases the cost of shipping goods because it is so far away, I mean, a nine-hour flight from DC, that is far, five hours from California, that is far away. So, on a ship, especially under the Jones Act, that must be so expensive. So, who supports it? Why do these Hawaiian Representatives support it, given that it does what it does?

Colin: So, who supports it? Well, you will not be surprised to learn that US shipbuilders support it. This of course as the law says, you must transport something in the US, you need to buy what they sell, that is a home run for them. They love it. Obviously, the people that operate the ships, support the Jones Act and that may seem a little counterintuitive because some people think, “Well, does Law forces them to pay extremely high prices for the ships they buy?” What they want at least to change that part of the law, but no they do not for a couple of reasons. One, these guys paid big bucks for the ships that they bought. Now, if tomorrow you repealed that US Built Requirement and let people buy ships from anywhere. Well, the value of their ships would plummet, it would plummet down to world prices.

So, you know that 250 million dollar ship they bought, well it will only be worth 50 million dollars. Furthermore, the high cost of buying vessels is a barrier to entry, which is great, it keeps other shipping companies out. If you look at the Hawaii Market, there are only two shipping companies that you can choose from. It is a duopoly there, you have Pasha and Matson, that is your two choices. Now it is just something to Alaska? Well, you got Matson, you got TOTE, two choices. You want to ship something to Puerto Rico, you got there two carriers that have 85 percent of the market. There are TOTE and Crowley, again, duopolies just all over the place. These guys do not want to see that US Built Requirement go away and they do not want any competition.

And then you have the Unions, the cruddy ships. Well, they do not want foreign competition either. Yeah, there are only 96 ships but with less competition, that means higher pay for their guys. So they do not want to lose that. Like you said, we have this interesting dynamic where the representatives and senators of Hawaii with the lone exception of Representative Ed Case, who represents Honolulu. He was opposed to the Jones Act. The other three members of the Hawaii Delegation are supporters of the Jones Act. It is interesting when Ed Case has been interviewed about this, you would think that opposing the Jones Act in Hawaii to be a slam-dunk position and he said, “This is one of the toughest issues or stances that I have taken”, which is kind of extremely counterintuitive and absurd frankly.

And then you have got Alaska where all three members support the Jones Act and this is even more strange because in 1984 there was a referendum passed by the people of Alaska, pass like sixty to forty, and what it did among its provisions was mandated, that the governor is one of this official duties, Lobby Congress for repeal of the Jones Act. That was the expression of the will of the people of Alaska. Well, the governor of Alaska cannot even get his own delegation on board. So, the people spoke out and yet they support the Jones Act. Why? Well, if you look at standard Dan’s Sullivan of Alaska’s website, his campaign website is re-elected last year. He featured endorsements from I think, something like twenty or twenty-one groups, four or five of those, roughly a quarter of them were all Jones Act supporting groups.

So, basically, when people walk into the voting booth, the people that care about the Jones Act tend to be those that support it, the people that make it a litmus test and a lot of people do not like it but it is not a make-or-break issue for them. It does not play a decisive role in who they vote for and that gets reflected in our politics. There are few people that profit handsomely from it and they make that their signature issue and they reward or punish politicians based on their stance or as most people they do not like it. In fact last year, there was a poll in Hawaii that showed out of people aware of the law in Hawaii, 85 percent favored either repealing or reforming the law and yet, we have the Status Quo where the political establishment is against reform.

Juliette: It is also of the people aware of it which indicates that… I do not know. I mean, I am young. I am still learning about everything there is, that exists. I mean, I feel like you do that for your whole life, but [crosstalk]

Colin: You do. Trust me.

Juliette: I feel like the fact that it is something… Okay.

So, I guess my question is, how does it affect the everyday American, and how does it affect the people of Puerto Rico, Hawaii, and Alaska in comparison to how it affects people on the mainland?

Colin: I would say, the common perception of the Jones Act is people think, well, it is a bad Law but really, frankly that is a problem for like three places like Alaska, Hawaii, Guam, and Puerto Rico. So, really not a problem for the rest of the country and I think that is a mistake for a few reasons. One reason I think we have that mentality, is we do not know the opportunities being missed because we have never existed in a world without the Jones Act, right? We do not know what changes there would be and what opportunities would present themselves if we did not have this law. I mean, for example, right now here on the East Coast, if you want to send something like container of goods from Boston to Miami by ship, you cannot do it. I mean, there are no US Jones Act compliant container ships that operate along the East Coast.

But that is not the end of the world because you can use a truck, you can use rail, you have alternatives, but in a non-Jones Act world, I think we would have more opportunities and different alternatives that would become available. There will be new ways of doing things and there will be new innovations. I think just a whole new world would open up to itself, which would reduce the cost of transportation. It would take more trucks and traffic off our highways. I mean, with less highway maintenance, it would be less crowded highways. Again, there will be environmental benefits for all of us if we had more goods being moved by ship.

Also, it is useful to remember that the Jones Act is a trade barrier. The United States is a huge country and we are a country that stretches from the Aleutian Islands of Alaska all the way to Puerto Rico and to Hawaii and to Maine and everywhere in between. Distance is a barrier to trade and having cheap efficient transport is a means of overcoming that trade barrier and doing business with each other. If we had cheap efficient shipping, we could do more business with each other.

And then lastly, I will point out that, not only is it a trade barrier and that it drives up the cost of transportation, that Jones Act as a trade barrier in the classic sense, and that when the United States negotiates free trade agreements with other countries. One thing we always do is we take the Jones Act off the table, we say that is not up for discussion. It does not matter who we are talking to. Our very first FTA with Canada, we refuse to talk about the Jones Act. So, our trade partners then variably respond by saying, “Well, you know that thing that you guys want, well, you are not getting it either”, so that means reduce opportunities for American exporters.

And then lastly, I mentioned to you before how the Jones Act incentivizes the purchase of foreign products instead of American products. Well, you may be someone in Kansas or in the Coast and you do not care that much about the Jones Act because again, you have access to truck and rail. Jones Act is not the end of the world. But, maybe that means someone in Puerto Rico or Hawaii or Alaska is not buying your product who otherwise would buy your product because again, they are buying the foreign product because the Jones Act makes it unattractive. Just price prohibitive to buy the American product, the one that you are trying to sell. So, I definitely think it is a mistake to think that this is an Alaska-Hawaii-Guam-Puerto Rico problem. It is very much an American problem and I think all Americans should be opposed to it.

Juliette: Yeah, I mean, that makes it so real. I mean, I knew that it kind of posed a problem because I would think about well, oh, when I am driving on the highway, it scares me to see those big scary trucks and if they were not there, would not that be so nice? That is how I have always kind of thought of it. But really, it is true, that would be better for the roads. It would be better for, I do not know, better for me. I would not be scared to drive on the road with the big trucks. If it is cost-efficient and makes it faster and or gives people alternatives and is safe for the environment comparatively. I do not know, it just sounds pretty nice.

Colin: Yeah. Yeah. Yeah.

Juliette: So, okay. Let us talk about some arguments when people argue for the Jones Act. So, some people say that the Jones Act, “provides stability to the US Maritime Industry and helps to sustain 650,000 American jobs resulting in a 150 billion dollars in economic benefits each year.” What do you say to that?

Colin: A few things. So, the idea that provides stability is false. I mentioned that there are 96 Jones Act Ships today. Back in the early 1950s, there are well, over 400 built ships that granted. Ships have gotten bigger, so you can do more with one ship than you could before. But even in terms of the amount of stuff that they are capable of transporting, the drones are fleet’s been on a decline for last three or 40 years. I think 40 years. So, it has not provided stability. The number of jobs is that 650,000 figure that you quoted. That is according to a report paid for by the Jones Act Lobby, I believe it is that Transportation Institute, which if you look on Google Maps is actually located in a parking lot that belongs to the Seafarers International Union.

Anyway, it is a report that they have never made public. Like, if you go googling for this report and try to download a copy, you will not find it. I was able to find the executive summary of this paper on the Shipbuilders Council of America website. After I post it on Twitter, they immediately yanked it off their website. They do not want people seeing their stuff evidently and if you actually read the executive summary, it says that the amount of actual direct jobs in the entire Jones Act Industry is less than a hundred thousand. I think it is 95,000. Well, back in the mid-1990s. These guys were talking about, we have 125,000 people employed in the Jones Act directly. Even, I think five years ago, they were talking about well, the Jones Act provides 500,000 jobs and now it is up to 650,000 jobs, even as a fleet has gotten smaller. I mean, the math is just, it is a hocus-pocus. It is not believable.

We know is not believable because if it was they would make the reports public, so they can be scrutinized. These are nonsense figures that they pedal and which in turn are repeated by politicians. So, I think that there is really no truth to any of the talking points contained in that passage.

Juliette: This you heard here, do not repeat things that people say without looking for the first source, with the primary source first. I do not know. I feel like, I mean, I know it is hard. I tried to do it myself as much as I can and when I cannot, I just try not to cite numbers because first, I do not know. I do not want to be the person that citing a report that no one can find on the internet, but it makes me think of… Okay.

So, we went to Georgia like a few weeks ago and there was a ship, I mean, you probably heard about it in 2019 that capsized with [crosstalk] 4,000 Hyundais on it.

Colin: Yeah. Yes.

Juliette: So, recently I made the connection. Oh, well that ship first probably was an American ship. I mean, I did not look into it, but I am probably was. Maybe not but [crosstalk] [inaudible]

Colin: It was not. It was the leader of the South and I know it is a South Korean Crude Ship, it was called the Golden Ray. I believe it contains, as a car-carrying ship, yeah. There are no Jones Act ships that are pure car carriers like that and on the fleet.

Juliette: Wow. Yeah, but I was just thinking about it and I was like, do they count the jobs that it takes to get rid of the ship? You know, they are still pulling it apart. It is still there.

Colin: Yeah. Yeah.

Juliette: They could not figure out whose job it was to get rid of it so it is still in the ocean. It just does not look good. But also, more than half of it is still there, I think. So, slow-moving, but I wonder if those are the sort of jobs that they count under this because I do not think that counts. Okay, so…

Colin: I cannot say because again, they do not really release the full version of the reports. You cannot break it and see how they arrived at these numbers that they have in the executive summary, so I cannot help you out, unfortunately.

Juliette: Yeah, that is just so frustrating because how are you… I do not know. That is just not honest. It is very slimy and not clear. Yeah. So, what do you say to the argument that the Jones Act advances our National Security by helping maintain a vibrant Domestic Shipbuilding Industry and Maritime Workforce?

Colin: Well, the US Shipbuilding Industry is anything but vibrant when it comes to commercial shipbuilding. According to the Congressional Research Service, in an average typical year, two or three ships are built, to put that in context, I mean, I do not mean per shipyard, I mean, that is the entire country put together all the shipyards. To put that in context, a single shipyard in South Korea can build 50 ships in a year, just that one shipyard. I do not mean all in South Korea, I mean a single shipyard.

Last year, American shipyards delivered one ship. This year, they are supposed to deliver two. Next year, zero. So, there is barely any commercial shipbuilding taking place particularly when we are talking about these large ocean-going ships. Yeah, we do build tug boats and ferries and smaller things like that, but large ocean-going ships, not very many at all. That number has been trending downward. So, when it comes to shipbuilding, it is very hard to make that case. If the argument is that we need the Jones Act to assure that we have lots of shipyards, well, we do not. What is driving you a shipbuilding is not the Jones Act. To this extent, we still have shipbuilding in this country. It is all government contracts. It is building for the Navy, it is building for the Coast Guards, it is building for the NOAA, National Oceanic and Atmosphere Administration, things like this. State and local government, ferries for the State of Washington Ferry System, things like that.

In 2015, there was a report from the US Maritime Administration that said that government contracts were 70% of shipbuilding revenue and now it is actually kind of low. I have seen previous estimates back in the ’80s at one point. It was like 91% of all revenue and other points have been 80%. So, most US shipbuilding is dependent on the government not on building these commercial ships for the Jones Act Fleet.

Juliette: Also, I do not remember what war it was, but we asked Russia for ships because ours were all outdated and they said no, of course. That shows you how desperate we were like [crosstalk]

Colin: This is, you are referring to the Persian Gulf War. Yeah, of 1990. This is a situation where Iraq invaded Kuwait and there were concerns that they were going to continue on and invade Saudi Arabia and we need to get as much NS-based soldiers and their equipment and supplies to Saudi Arabia as quickly as possible. This is kind of the situation that the Jones Act was tailor-made for, right? I mean, the whole point of the Jones Act is in these situations. We have lots of ships and lots of mariners to crew those ships and that was absolutely not the case. We had to use a lot of foreign ships. I think something like a hundred and seventy foreign ships was chartered to carry equipment and supplies for our soldiers. Again, as you mentioned, we were so desperate for ships. We actually went to the Soviet Union twice and asked them to borrow one of theirs. Not only will we short of ships, but we are also short of mariners to crew those ships.

In fact, we would have had a shortage but fortunately, in January of 1990, the Great Lakes froze over and so all the guys that work on some of the ships in the Great Lakes were able to crew some of the ships, but they still had to use lots of retirees, veterans of the Vietnam War, the Korean War, World War Two, there are guys in their 60’s, 70’s, there are few guys in their 80’s. There was one guy who was 92 years old that was used to crew on these ships. So, if you think what we need, drugs are for shipbuilding, well, no, it is a total failure. If we need the Jones Act to ensure we have lots of ships, no, we do not. And that is 30 years ago. The fleets have only gotten smaller. Do we need the Jones Act to ensure that we have lots of mariners? Well, no, we do not have those either. So, what are we doing here?

Juliette: That is an excellent point and let the poor guy rest, they were old. They have fought their war for you. I do not know. That really bothers me, poor 92-year old man. Hopefully, they paid him. Well, I do not know, probably not. So, what do you say to people who claim that ” We depend too heavily upon foreign shipping in global trade with 97% of all US Overseas Commerce being conducted by Foreign Flag carriers and losing the Jones Act would mean sitting our domestic Maritime Economy to China or other Foreign Flag competitors making us more vulnerable during times of crisis?”

Colin: Well, I think, as you point it out, we are already depending on foreigners for the majority of our Maritime Trade. If you think the Jones Act keeps us dependent or free of foreign dependence, you are absolutely wrong. As I mentioned before, what the Jones Act does, is deters the use of American shipping and buy American products. So, again, Puerto Rico, instead of abscent the Jones Act, we would probably have foreign ships transporting American products from the US Mainland say to Puerto Rico, but instead what we have is people using foreign ships to take a foreign product from a foreign port to Puerto Rico. If you are concerned about foreigners, I am not, but if you are, if you are one of those types of people, that is not an improved situation.

We have had examples in New England and Puerto Rico of Liquefied Natural Gas being imported from Russia to those places because New England cannot, again, there are no Jones Act Ships to transport the LNG from other parts of the United States, so they have to turn to foreign sources including on a few caissons Russia. That does not seem like an improvement to me. If you are concerned about China, according to the Department of Agriculture, we have seen increased imports of rice from China to Puerto Rico. According to the Primarical[?] US[?] websites, says there are two main reasons, one is that the rice is cheap in China, and two, you factor in the cost of transportation. It specifically says that Jones Act is a deterrent to buying rice from the Southeastern United States like Arkansas, which actually is a fairly significant rice producer. So, the Jones Act again is a law that encourages more foreign reliance and buying more foreign products, if that is the kind of thing you are concerned about.

But then also, let us look at that foreign trade. Again, like you said, I mean, Americans use foreign ships for something like ninety-eight or ninety-eight and a half percent of all of the products that we export-import. For the most part, it worked out pretty well. There are no documented terrorist incidents of foreign. We have foreign ships in our ports all the time, have not had any security incidents. You did mention the Golden Ray, which sank down in kind of this Georgia or South Carolina, car carrier, but we have had mishaps with the Jones Act Ships, as well. There was a Jones Act Ship that sank in 2015 called the El Faro, it is a 40-year old ship that sank in a hurricane on the way to Puerto Rico. Back in 1989, we had the Exxon Valdez, one of the most notorious environmental disasters in American history. That was a Jones Act Ship.

Juliette: Oh my God.

Colin: So, this idea that uses American and there is no downside and they were protected from any sort of mishaps. That is absolutely a misconception.

Juliette: It is like, this was meant to promote using American but really, it just not only deters other companies and countries but like, it deters consumers from having the cheapest product because if natural gas is in the United States and you want that, oh, well, it sucks, you cannot have it, it costs more. But then also for producers, it just seems to suck for everyone. So, even by its own standard the Jones Act has failed and continues to fail. Do you see any real prospect of getting rid of it?

Colin: It is very difficult. I think getting rid of it, just straight in the repeal of the law, I think will be incredibly difficult. Right now, the Jones Act is, according to the World Economic Forum, the world’s most restrictive example of a Cabotage Law. Cabotage Laws are laws that govern who can transport goods within a country. Lots of countries have Cabotage Laws. There are very few countries that say, “Okay, any ship, no matter where you are from, you can transport goods within our country.” The EU does have permissive Cabotage, for example, among EU members, you can use ships from any country. But within those Cabotage Laws, the Jones Act is, according to the World Economic Forum, the world’s most restrictive example of a Cabotage Law.

So, we are not going to go from one extreme of having the world’s most restrictive Capitalist Law to know Cabotage Law, but I do think that there are opportunities, or at least there should be opportunities for some reforms, some steps in the right direction. For example, when it comes to these large
ocean-going ships, we barely build any or protecting industry, they barely exist. We should stop doing that. Why do you say Americans, “Hey, we have not built that”, I mentioned their LNG carriers in the Jones Act Fleet. We have to be built one in this country in over 40 years, why you just let Americans buy a foreign one, that is not a business that we are engaged in.

So, start with that US Built Requirement and take a look at that. Also, the 75% ownership rule strikes me as fairly absurd and unjustifiable. I think there are some common-sense ways of moving us forward. That we produce gains not only for American consumers but for the American Maritime Industry itself. It is a really insane approach to say, “Okay, this is a law that is going to promote the US Merchant Marine our Maritime Industry.” The way we are going to do that is by forcing people to pay five times the price for ships. I mean, that sounds like an idiotic way of trying to improve your Maritime Industry.

May imagine if we took that logic and applied it to Aerospace and our Airlines said, “Okay, Delta American Airlines, you guys got to raise the price of your airplanes by a factor of five.” What would that do to that industry? It is absolute insanity. So, I think, to the extent, that there is hope for reform and revisions. I think it is looking at the US Built requirement. I also think it is high time that we look at again, Puerto Rico. The entire logic for the Jones Act is that, by putting these restrictions, it would ensure that we would have these ships and mariners that we can use in times of War. Well, even if you accept that logic and think of that as a sound way of doing things, basically it says, well, this National Security goal[?] the ability to transport equipment supplies anywhere in the world. Well, that is going to be paid for mainly by the people who use ships which is again, Puerto Rico, Hawaii, and Alaska.

So, this tiny percentage of the population has to pay the bill for this good that supposed to benefit all of us. It is supposed to be for National Security and that just strikes me as grossly unfair. Particularly, to put it on some of the poorest Americans in the country, that is obscene and that should be changed. And then, we could give say, Puerto Rico an exemption to the Jones Act and then use that as a test case and we could be incremental about it and after five years, ten years, study the effects and see what has happened and then move on from there. But I think the unfortunate reality is the Jones Act Lobby and those who support the law are scared to death of something like that because they know what the findings would be. It would be just a lot of improvement, major cost savings, new efficiencies and there will be no looking back.

Juliette: It is America, the Land of the Free, except we have the most restrictive Cabotage Law. I learned a new word today. I do not know [crosstalk]

Colin: You bring up a good point. I mean, we talked a lot about economics and costs and National Security. Also, I think part of this conversation, we should step back at some point and go. You know what? This is the Land of the Free, as a free person, I should be able to use a foreign ship to transport goods within the United States at a minimum. I should be able to buy a ship from any country. I want as a free person, that is something I should be able to do and I think that gets lost sometimes and overlooked.

Juliette: Yeah. No. You are definitely right. I was kind of just saying that, to say that. But like, it is a very good point and it is something to think about. I do not know. Thank you so much. So, to wrap up, what is one thing you believe that one time in your life that you later change your position on and why?

Colin: Well, there is a lot to choose from here. A number of issues I can draw upon but something that I have been thinking a lot about lately is, something I got to protect wrong was the impact of the internet on news and politics. I really thought back in like, the late ’90s or so, and the internet started to become a big-time thing. It would be this unalloyed good by democratizing access to information and even the ability to create information. It will no longer be beholden to this relatively small group of media Gatekeepers who controlled the news. People can just go out and look for the truth and bias would be punished. That was really naive.

In fact, what I have learned and what experience has shown, these people love bias. Most people do not want the truth. What people want is information that confirms their biases and preconceived notions about how the world works. It feels good to have people say, “You know that thing you thought, well, you are right once again.” Having your beliefs challenged is highly uncomfortable and discombobulating. People with a truly open mind who just do not go along with the rest of the herd are pretty rare commodities and I am concerned about what the internet has done to our politics and the way we converse with one another and how siloed we have become. It is something I just totally missed because I truly did not understand human nature very well and I probably still do not.

Juliette: I do not think any of us do, so you are not alone. So then, thank you for sharing. That is all the time we have for today. I would like to thank Colin once again for his time and insight on this issue. I also would like to thank everybody who listens, subscribes, and shares The Great Antidote podcast. If you would like to be on the podcast, or if you have a guest in mind, please feel free to reach out to me at [email protected] Thank you. Bye.

CGO scholars and fellows frequently comment on a variety of topics for the popular press. The views expressed therein are those of the authors and do not necessarily reflect the views of the Center for Growth and Opportunity or the views of Utah State University.